OECD Countries Local Government Fiscal Context

OECD Countries Local Government Fiscal Context [DRAFT 1-29-133-31-14]
Hal Wolman and Diana Hincapie, George Washington Institute of Public Policy
Below we present a contextual overview of local government finance in the OECD countries.
The overview consists of a set of tables (see below) and discussion of the role of local
government in the public sector, the extent of local government autonomy in each of the
countries, and the functional assignment of responsibility of the various local government
systems (who does what?). The six countries that are the focus of our study are thus placed
within the broader context of all OECD countries for which relevant data are available. A more
complete discussion of the local government context of the six countries is then included.
Tables for OECD Countries:
Table 1:
Table 2:
Table 3:
Table 4:
Table 5:
Local tax revenue as a percentage of all government tax revenue, 2010
Local Public Expenditure as a Percentage of all Non-Defense Public Expenditure,
2010
Local government expenditure as percentage of GDP, 2010
Revenue by Source as a percentage of total local revenue, 2010
Local expenditures on key public services as a percentage of all general
government spending on that service, 2010.
Role of Local Government in the Public Sector.
Local government varies dramatically in the importance of its role relative to other governmental
levels across the OECD countries. Tables 1 and 2 provide two measures of local government
importance relative to other levels of government, one related to tax-raising and the other to
public expenditure. The first table displays each OECD country’s local government tax revenue
as a percentage of tax revenue raised by all levels of government (national, state, and local in
federal systems; national and local in unitary systems). The second table displays local
government direct general expenditure as a percentage of all levels of government direct general
expenditure, excluding defense expenditures (direct general expenditure excludes grants
provided to another level of government). Note that local governments may play a relatively
small role in tax-raising but a relatively larger role in spending if local governments receive
substantial amount of grant funds from higher levels of government.
The range with respect to both taxing and spending is enormous. Local government taxes as a
percentage of all public sector taxes ranges from 1.2% in Greece to 43.9% in Japan. Local
government public spending as a percentage of all public spending ranges from 6.6% in Greece
to 65.9% in Denmark.
Below we group countries for which there are data for both local revenues and expenditures into
five categories. The categories relate the country’s rank for each of the two measures relative to
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the overall median. Countries with values five or more percentage points above the median on
both measures are termed “high local government importance.” Countries with values five or
more percentage points below the median on both measures are deemed “low local government
importance.” Countries within five percentage points of the median on both measures are
deemed “average local government importance.” Countries that are within five percentage
points of the median on either the revenue or expenditure category, but are more than five
percentage points from the median (either above or below) are termed “mixed.”
Countries with high relative local government importance (the six countries in our study are
bolded)
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Denmark
Finland
Italy
Japan
Korea
Sweden
United States
Countries with low relative local government importance
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Australia
Austria
Belgium
Greece
Ireland
Israel
Portugal
Countries with average or mixed relative local government importance

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
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Canada
Czech Republic
Estonia
France
Germany
Hungary
Iceland
Netherlands
Norway
Poland
Slovak Republic
Slovenia
Spain
2

United Kingdom
Countries with high local government importance are, with one exception, countries with highly
centralized unitary systems of government. It is not surprising that local governments in federal
systems generally play a smaller role with respect to both taxes and spending since in federal
countries there is an intermediary level of government with taxing and spending powers1. The
one exception is the United States, where localism is culturally and politically embedded, even if
it is not institutionally so.
The six countries in our study are bolded above.
However, while local government may play an important role relative to other levels of
government, our assessment of local government’s overall importance may differ depending on
the role local government plays in the national economy relative to the private sector. if the
public sector as a whole plays a small role in the national economy relative to the private sector
as opposed to playing a large role. Table 3 provides data on the local public sector expenditure
relative to the nation’s overall economy.
Inspection of the data in Table 3 does not change our ranking of local government importance.
All of the countries that ranked high in terms of the importance of local government relative to
the other governmental levels also rank above the median in terms of local government’s share
of the national economy. Similarly, all of the countries whose local government system ranked
low in terms of importance relative to the rest of the public sector also ranked below the median
with respect to local government importance in the national economy.
Local Autonomy
We conceive a country’s local government system to have local autonomy if it has available to it
a substantial amount of resources available to it that can be used in any manner it wishes, i.e.,
subject to local government discretion. In general, revenue raised from local sources (taxes and
fees and charges) is available for the local government to use for any legal purpose. Grant
revenue available from other levels of government is constrained either by legal use, if it is a
categorical or conditional grant, or, more generally, by the possibility of future year reductions if
a general grant. Thus, percentage of local government revenue resulting from grants from higher
level of governments is generally viewed as one indicator of local discretion, with a low
percentage indicating relatively high local discretion and a high percentage indicating relatively
less local discretion.
Table 4 ranks OECD countries on the degree to which their local government systems have local
discretion as measured by own source local revenue as a percentage of total local revenue (i.e.,
100 - grants as a percentage of local revenue). The ranking is from high local discretion to low.
1
A much higher role in expenditure than in revenue raising may mean either that local government is receiving large
amounts of grant funding to use to assist in providing local government services or that local government is simply
serving as an administrative mechanism for a higher level of government in providing services of the higher level
government, with the funds for those services passing through the local government budget.
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Formatted: Font: Italic
Formatted: Font: Not Italic
Iceland has the highest degree of local discretion on this measure, while the United Kingdom has
the lowest. Of the six countries that are the focus of our study, the United States, Germany and
Spain have relatively high levels of local discretion, while Italy, Poland, and the United
Kingdom have relatively low levels.
However, having substantial discretion may be rather meaningless if there is not much revenue
available. Local autonomy is thus best conceived as a substantial amount of revenue available
for discretionary use. In terms of comparing the OECD countries, we measure amount of local
revenue as own-source local revenue as a percentage of GDP. We measure discretion as above,
i.e., percentage of local revenue raised through own sources as a percentage of GDP. These
numbers data are reported in Table 5.
We term countries above the median on both of these measures as characterized by high local
autonomy, those below the median on both as low local autonomy, and those below the median
on one of the measures and above on the other as mixed or medium local autonomy. Below we
present the resulting classification of local government system autonomy of OECD countries for
which data are available on both measures.
High Local Autonomy
Austria
Czech Republic
Estonia
Finland
Iceland
Sweden
Switzerland
United States
Formatted: Font: Not Bold
Medium (Mixed) Local Autonomy
Denmark
France
Germany
Israel
Italy
Norway
Poland
Portugal
Spain
Low Local Autonomy
Belgium
Canada
Hungary
Ireland
4
Luxembourg
Netherlands
Slovenia
United Kingdom
Formatted: Font: Not Bold
Who Does What?
Local government systems perform different functions in different countries. These differences
are due to national government assignment of service responsibilities to different levels of
government, to the amount of “home rule” local governments have to undertake activities not
assigned to them, to the amount of local autonomy they have (see prior section), and to
differences in local preferences across countries.
We use the International Monetary Fund’s public service categories and data from their
Government Statistics Yearbook, 2011 to compare local government systems across countries.
Table 6 presents local government direct general spending as a percentage of all government
direct general spending (i.e., exclusive of grants provided to other levels of government) for each
of the IMF categories. Those functions for which the local government system is responsible for
more than 25% of all government direct general spending we designate as functions for which
the local government system plays an important role and are bolded.
Although there are important exceptions in each case, local governments in most of the countries
play an important role in environmental protection, housing and community development,
recreation, and education. However, while the median country’s local government system
spends nearly 50% of all public sector funds spent on education, the Spanish, Australian, and
Greek systems all account for less than ten percent of all government education spending. With
the exception of the Scandinavian countries (particularly Sweden and Denmark) and Korea, few
local government systems are responsible for social protection and welfare spending. In health,
the median local government system spends less than five percent of all government spending,
but the Scandinavian countries, some eastern and central European countries (Estonia, Hungary,
and Poland) and Korea and Italy all spend more than 25% of total government spending on that
function. Belgium, Canada, the Netherlands, the United Kingdom, and the United States are the
only countries in which local governments spend more than 25% of all public spending on public
order and safety.
The functions for which the six countries in our study play an important role (i.e., account for
more than 25% of all government spending) are listed below:
Germany:
economic affairs, environmental protection, housing and community
amenities, recreation, and education.
Italy2:
general public services, economic affairs, environmental protection,
housing and community amenities, health, recreation, and education.
Poland:
economic affairs, environmental protection, housing and community
amenities, health, recreation, and education.
2
This is somewhat misleading since the IMF treats Italian intermediary levels of government as local government.
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Spain:
general public services, environmental protection, housing and community
amenities, and recreation.
United Kingdom:
public order and safety, economic affairs, environmental protection,
housing and community amenities, recreation, and education.
United States:
public order and safety, recreation, and education.
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OECD Country Tables
Table 1. Local tax revenue as a percentage
of all government tax revenue, 2010
Australia
Austria
Belgium
Canada
Chile
Czech Republic
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Iceland
Ireland
Israel
Italy
Japan
Korea
Luxembourg
Mexico
Netherlands
New Zealand
Norway
Poland
Portugal
Slovak Republic
Slovenia
Spain
Sweden
Switzerland
Turkey
United Kingdom
United States
Mean
Median
3.48%
17.75%
7.64%
11.95%
6.34%
26.07%
27.32%
22.02%
34.96%
16.71%
12.85%
1.23%
9.62%
29.11%
4.02%
9.07%
21.33%
43.91%
21.97%
6.23%
n/a
5.86%
7.35%
17.82%
19.47%
9.59%
18.64%
18.97%
14.93%
42.32%
n/a
n/a
6.21%
24.10%
16.74%
16.71%
Source: IMF Government Statistics Yearbook 2011.
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Table 2. Local expenditures as a Percentage of all NonDefense Public Expenditure, 2010
Australia
Austria
Belgium*
Canada**
Chile
Czech Republic
Denmark
Estonia
Finland*
France
Germany
Greece*
Hungary*
Iceland
Ireland*
Israel
Italy*
Japan
Korea
Luxembourg
Mexico
Netherlands
New Zealand
Norway
Poland
Portugal
Slovak Republic
Slovenia
Spain
Sweden
Switzerland
Turkey
United Kingdom*
United States***
Mean
Median
7.2%
15.8%
13.6%
19.0%
n/a
26.5%
65.9%
25.8%
41.8%
21.7%
17.1%
6.6%
24.3%
26.0%
15.3%
16.6%
33.1%
n/a
60.1%
n/a
n/a
34.5%
n/a
34.6%
34.1%
14.4%
18.9%
20.5%
16.1%
49.5%
23.6%
n/a
29.5%
31.5%
26.6%
23.9%
Source: IMF Government Statistics Yearbook 2011; Data for the US:
Office of Management and Budget, 2010. Notes: Data for local
government in Italy includes italian municipalities, provinces and
regions. Bolded data means local government sector accounts for more
than 25% of all government spending on function; i.e., it plays an
important role. *2009. **2007. ***2010.
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Table 3. Local government expenditure as
percentage of GDP, 2010
n/a
7.38
6.90
8.71
n/a
11.76
36.53
9.98
22.24
11.49
7.59
2.87
12.65
13.31
6.43
5.42
15.69
n/a
13.00
4.89
2.10
17.03
n/a
15.08
14.88
7.13
7.28
10.09
6.26
24.90
6.96
n/a
13.98
11.50
11.52
10.09
Australia
Austria
Belgium
Canada
Chile
Czech Republic
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Iceland
Ireland
Israel
Italy
Japan
Korea
Luxembourg
Mexico
Netherlands
New Zealand
Norway
Poland
Portugal
Slovak Republic
Slovenia
Spain
Sweden
Switzerland
Turkey
United Kingdom
United States
Mean
Median
Source: OECD fiscal decentralisation database.
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Table 4. Revenue by source as a percentage
of total local revenue, 2010
Iceland
Switzerland
Austria
Sweden
United States
Finland
Slovak Republic
Portugal
Czech Republic
Israel
Germany
Estonia
Spain
Slovenia
Norway
France
Canada
Italy
Luxembourg
Belgium
Poland
Ireland
Denmark
Hungary
Netherlands
United Kingdom
Mean
Median
Own Source
88.7
86.7
81.7
76.5
73.9
70.5
70.1
66.2
65.4
64.6
64.5
60.8
60.4
60
59.1
58.8
57
52.8
52.2
50.3
49.3
44.4
43.8
41
29.6
28.6
59.9
60.2
Grants
11.3
13.3
18.3
23.5
26.1
29.5
29.9
33.8
34.6
35.4
35.5
39.2
39.6
40
40.9
41.2
43
47.2
47.8
49.7
50.7
55.6
56.2
59
70.4
71.4
40.1
39.8
Source: OECD fiscal decentralisation database.
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Table 5. Own-source local revenue as a
percentage of GDP, 2010
Australia
n/a
Austria
6.32%
Belgium
3.48%
Canada
4.65%
Chile
n/a
Czech Republic
7.45%
Denmark
16.36%
Estonia
6.24%
Finland
15.63%
France
6.90%
Germany
5.03%
Greece
n/a
Hungary
4.85%
Iceland
11.13%
Ireland
3.88%
Israel
3.75%
Italy
8.09%
Japan
n/a
Korea
n/a
Luxembourg
2.77%
Mexico
n/a
Netherlands
4.83%
New Zealand
n/a
Norway
8.48%
Poland
6.80%
Portugal
4.24%
Slovak Republic
4.48%
Slovenia
5.90%
Spain
3.91%
Sweden
19.62%
Switzerland
6.74%
Turkey
n/a
United Kingdom
4.00%
United States
6.17%
6.99%
Mean
Median
6.04%
Source: OECD fiscal decentralisation database.
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Table 6. Local expenditures on key public services as a percentage of all general government spending on that service, 2010
General Public Public Order
services
and safety
Australia
Austria
Belgium*
Canada**
Chile
Czech Republic
Denmark
Estonia
Finland*
France
Germany
Greece*
Hungary*
Iceland
Ireland*
Israel
Italy*
Japan
Korea
Luxembourg
Mexico
Netherlands
New Zealand
Norway
Poland
Portugal
Slovak Republic
Slovenia
Spain
Sweden
Switzerland
Turkey
United Kingdom*
United States***
Mean
Median
15.8%
20.1%
18.8%
13.0%
n/a
35.0%
19.7%
25.9%
45.1%
31.7%
23.5%
12.4%
20.5%
17.7%
7.5%
15.6%
30.3%
n/a
57.1%
n/a
n/a
23.3%
n/a
33.1%
23.1%
27.0%
27.6%
17.6%
43.7%
39.9%
30.1%
n/a
18.5%
20.9%
25.5%
23.2%
2.6%
10.3%
48.1%
35.0%
n/a
10.4%
9.0%
1.6%
18.7%
21.1%
16.0%
1.3%
8.1%
9.5%
7.3%
8.5%
12.2%
n/a
0.0%
n/a
n/a
56.2%
n/a
15.0%
15.8%
3.5%
0.7%
7.7%
20.2%
14.6%
26.6%
n/a
49.2%
52.6%
17.2%
11.3%
Economic
affairs
Environment
protection
13.9%
17.1%
11.8%
28.5%
n/a
34.0%
41.5%
24.0%
28.3%
44.5%
22.8%
12.4%
17.6%
13.8%
27.9%
17.6%
52.5%
n/a
47.5%
n/a
n/a
52.2%
n/a
31.0%
45.1%
27.3%
17.9%
29.8%
20.5%
33.2%
26.9%
n/a
28.5%
21.6%
28.2%
27.6%
48.9%
60.1%
55.5%
69.0%
n/a
65.6%
50.9%
97.7%
40.3%
88.7%
60.5%
81.3%
52.5%
46.3%
72.8%
85.7%
85.4%
n/a
n/a
n/a
n/a
92.7%
n/a
82.0%
88.3%
68.5%
58.5%
69.8%
69.7%
61.9%
70.2%
n/a
55.9%
n/a
68.4%
68.8%
Housing and
community
amenities
23.1%
34.9%
51.9%
69.7%
n/a
67.6%
41.1%
94.9%
54.7%
95.6%
56.3%
38.5%
99.6%
12.4%
94.7%
38.1%
82.9%
n/a
93.1%
n/a
n/a
85.1%
n/a
92.3%
95.8%
97.8%
85.0%
72.2%
75.7%
89.3%
83.8%
n/a
67.0%
23.7%
68.5%
74.0%
Health
0.3%
19.1%
2.4%
1.5%
n/a
4.4%
98.3%
30.5%
83.8%
1.1%
2.0%
n/a
32.4%
1.1%
0.0%
0.4%
98.5%
n/a
49.2%
n/a
n/a
3.3%
n/a
27.5%
45.8%
5.0%
0.3%
15.2%
1.8%
97.2%
12.8%
n/a
0.0%
10.2%
23.9%
5.0%
Recreation,
culture, and
religion
43.9%
52.5%
49.3%
53.9%
n/a
72.0%
54.2%
44.4%
73.0%
73.4%
64.9%
20.8%
41.6%
67.5%
49.7%
47.3%
56.5%
n/a
77.5%
n/a
n/a
84.5%
n/a
65.6%
82.8%
69.6%
51.3%
55.8%
52.3%
78.1%
61.1%
n/a
49.4%
69.4%
59.4%
56.1%
Education
Social
Protection
0.2%
25.0%
22.2%
47.7%
n/a
74.3%
49.0%
58.0%
64.6%
31.3%
27.1%
1.7%
64.3%
58.5%
22.5%
28.4%
28.1%
n/a
109.4%
n/a
n/a
78.3%
n/a
67.4%
73.0%
10.9%
66.3%
55.6%
5.2%
76.9%
36.5%
n/a
67.4%
51.5%
46.5%
50.2%
1.3%
7.4%
6.3%
3.3%
n/a
7.5%
81.2%
5.6%
23.4%
8.3%
12.6%
1.9%
8.7%
23.6%
4.4%
9.5%
3.8%
39.1%
n/a
n/a
15.1%
n/a
22.8%
10.8%
2.7%
4.0%
2.4%
4.0%
30.7%
10.3%
n/a
22.8%
8.2%
13.6%
8.3%
Source: IMF Government Statistics Yearbook 2011; Notes: Data for local government in Italy includes italian municipalities, provinces and regions. Bolded data means local government sector
accounts for more than 25% of all government spending on function; i.e., it plays an important role. *2009. **2007. ***From IMF Government Statistics Yearbook 2001.
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